The Societal Benefit of a Financial Transaction Tax



Berentsen, A, Huber, S and Marchesiani, A ORCID: 0000-0002-1866-6279
(2016) The Societal Benefit of a Financial Transaction Tax. European Economic Review, 89. 303 - 323.

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Abstract

We provide a novel justification for a financial transaction tax for economies where agents face stochastic consumption opportunities. A financial transaction tax makes it more costly for agents to readjust their portfolios of liquid and illiquid assets in response to liquidity shocks, which increase both the demand for and the price of liquid assets. The higher price improves liquidity insurance and welfare for other market participants. We calibrate the model to U.S. data and find that the optimal financial transaction tax is 1.6% and that it reduces the volume of financial trading by 17%.

Item Type: Article
Uncontrolled Keywords: financial transaction tax, Tobin tax, pecuniary externality, financial intermediation
Depositing User: Symplectic Admin
Date Deposited: 05 Aug 2016 10:20
Last Modified: 21 Apr 2021 19:24
DOI: 10.1016/j.euroecorev.2016.08.003
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3002782